diff --git a/modelopt/torch/distill/losses.py b/modelopt/torch/distill/losses.py
index 832437b7e59..d094ac9e899 100644
--- a/modelopt/torch/distill/losses.py
+++ b/modelopt/torch/distill/losses.py
@@ -103,7 +103,9 @@ def forward(
         Args:
             logits_s: Student's logits, treated as prediction.
             logits_t: Teacher's logits, treated as training target.
-            labels: Labels for the ground truth, used to prepare the corrected teacher distributions.
+            labels: Labels for the ground truth, used to prepare the corrected teacher
+                distributions. Flattened alongside the logits, so it carries one label per
+                position, e.g. ``(batch, seq_len)`` against ``(batch, seq_len, vocab)`` logits.
 
         .. note::
 
@@ -115,7 +117,7 @@ def forward(
         target_logits: torch.Tensor = logits_t / self._temperature  # (B, ..., C)
         target_logits = target_logits.view(-1, target_logits.size(-1))  # (new B, C)
         soft_targets = self._prepare_corrected_distributions(
-            target_logits, labels, self._threshold, apply_threshold_to_all=True
+            target_logits, labels.reshape(-1), self._threshold, apply_threshold_to_all=True
         )
 
         kd_loss = F.kl_div(
diff --git a/tests/unit/torch/distill/test_distill.py b/tests/unit/torch/distill/test_distill.py
index 7c938aee90d..83bb179dfe0 100644
--- a/tests/unit/torch/distill/test_distill.py
+++ b/tests/unit/torch/distill/test_distill.py
@@ -127,6 +127,23 @@ def test_distillation_model_mft():
     assert isinstance(loss, torch.Tensor) and loss.numel() == 1
 
 
+def test_mft_loss_accepts_sequence_shaped_logits():
+    """MFTLoss flattens the logits it is given, so the labels have to follow them."""
+    torch.manual_seed(0)
+    batch, seq_len, vocab = 2, 8, 50
+    logits_s = torch.randn(batch, seq_len, vocab)
+    logits_t = torch.randn(batch, seq_len, vocab)
+    labels = torch.randint(0, vocab, (batch, seq_len))
+
+    loss = mtd.MFTLoss()(logits_s, logits_t, labels)
+
+    # One label per position, so flattening first must not change the result.
+    flattened = mtd.MFTLoss()(
+        logits_s.reshape(-1, vocab), logits_t.reshape(-1, vocab), labels.reshape(-1)
+    )
+    assert torch.allclose(loss, flattened)
+
+
 def test_distillation_mode_default_config():
     student = tiny_mobilenet()
     with pytest.raises(AssertionError):